Good afternoon ladies and gentlemen, and welcome to the Q1 2020 Fulgent Genetics Earnings Conference Call. [Operator Instructions] As a reminder this call is being recorded. I would now like to hand the conference over to your host today, Ms. Nicole Borsje, with Investor Relations. Please go ahead.

Great, thanks. Good afternoon, and welcome to the Fulgent Genetics first quarter 2020 financial results conference call. On the call today we have Ming Hsieh, Chief Executive Officer; Paul Kim, Chief Financial Officer; and Brandon Perthuis, Chief Commercial Officer. The company's press release discussing its financial results is available in the Investor Relations section of the company's website, fulgentgenetics.com. An audio replay of this call will be available shortly after the call concludes. Please visit the Investor Relations section of the company's website to access the audio replay. Management's prepared remarks and answers to your questions on today's call will contain forward-looking statements. These forward-looking statements represent management's estimates based on current views and assumptions, which may prove to be incorrect. As a result, matters discussed in any forward-looking statements are subject to risks, uncertainties and changes in circumstances that may cause actual results to differ from those described in the forward-looking statements. The company assumes no obligation to update any of the forward-looking statements it may make today to reflect actual results or changes in expectations. Listeners should not rely on any forward-looking statements such as predictions of future events and should listen to management's remarks today with the understanding that actual events, including the company's actual future results, may be materially different in what is described in or implied by these forward-looking statements. Please review the more detailed discussions related to these forward-looking statements, including the discussions of some of the risk factors that may cause results to differ from those described in these forward-looking statements contained in the company's filings with the Securities and Exchange Commission, including the previously filed 10-K for the full year 2019 which is available on the company's Investor Relations website. Management's prepared remarks, including discussions of earnings and earnings per share contain financial measures not prepared in accordance with Accounting Principles Generally Accepted in the United States or GAAP. Management has presented these non-GAAP financial measures because it believes they may be useful to investors for various reasons, but they should not be viewed as a substitute for/or superior to the company's financial results prepared in accordance with GAAP. Please see the company's press release discussing its financial results for the first quarter of 2020 for more information, including the description of how the company calculates non-GAAP earnings and earnings per share and a reconciliation of these financial measures to income and incomes per share, the most directly comparable GAAP financial measures. With that, I'd now like to turn the call over to Ming. Ming?

Thank you, Nicole. Good afternoon and thank you for joining our call today to discuss our first quarter 2020 results. I will review the highlights from our first quarter before handing over to our Chief Commercial Officer, Brandon Perthuis, to provide updates on our go-to-market strategy. And finally, Paul will discuss our financial results and our outlook in detail. While we had a good start to the year, the global proliferation of the novel coronavirus has had a meaningful impact on our business, both in terms of demands of our core testing business, as well as on our operation. Specifically, due to early decisive action we took to recover our company to address the large market need for testing solutions aimed this pandemic. As we discussed briefly on our last earnings call, we were quickly to pivot our resources to focus on development and the launch of testing solutions for COVID-19 in the first quarter. I will speak these dynamics in detail in a moment, but first, I will provide a quick update on our results for the first quarter. Revenue was in line with our expectations for the first quarter growing 44% year-over-year to $7.8 million. Billable test increased 75% year-over-year to 13,163. Our ASP was a 589 essentially flat with what we saw in Q4. While cost per test increased 18% from Q4. Non-GAAP gross margins in the first quarter was 51% up approximately 300 basis points from the first quarter last year and down approximately 8 percentage points sequentially. This sequential decline in gross margin was due to both test mix along with investment and expenses related to rollout of our COVID-19 tests. Adjusted EBITDA loss was $506,000 in the first quarter. Before I get into the impact of COVID-19, I want to spend a few minutes…

Thanks Ming. As Ming mentioned, our hearts go out to everyone who has been impacted by the COVID-19 pandemic. And we hope to all emerge from this stronger than we were before. I would like to take a few minutes to discuss our core business and our new test for COVID-19, which are uniquely meeting the needs of various organization. During the quarter, we made testing for our core business more accessible from online ordering for our rare disease, oncology, and reproductive health clients. By adding these capabilities to our fully operational laboratory, we continue to deliver high quality results to customers with no negative impact on turnaround time. Sequencing as a service had a strong quarter, it continues to be a growth area for our company as we expand our reach with biopharma and contract research organization. During this difficult time, we remain committed to delivering the same high quality services that our customers have come to expect from Fulgent. Turning to COVID-19, as Ming mentioned, we launched two tests for COVID-19, NGS and RT-PCR. We have seen demand from hospital systems, clinics, large corporations and other health care providers, preclinical testing via RT-PCR. In addition, we are seeing interest for our next generation sequencing test, as researchers turn to sequencing the genome of SARS-CoV-2. Many of these organizations are new clients to Fulgent, and is likely these newly formed relationships will expand to other services we provide in the future. Operationally, we have added an additional shift at our laboratory and are now fully operational seven days a week. This has increased our capacity for COVID-19 testing, and we are now processing thousands of tests per day. We continue to see a significant need for our services, but perhaps more importantly, we continue to receive outstanding feedback from…

Thank you, Brandon. First quarter revenues totaled $7.8 million, an increase of 44% compared to the first quarter of 2019. Our U.S. business remains the most significant driver of our momentum. The revenue from the U.S. grew 56% year-over-year in the first quarter, representing 73% of revenues during the quarter. As Ming indicated, our business continued to diversify and we did not during this quarter have a single customer who comprised more than 10% of revenue. Billable test in a quarter totaled 13,163 growing 75% organically over Q1 of last year. The vast amount of this volume was from our core business and unrelated to COV-19, although, we did start to see some of this volume come in at the very last week of the quarter. Subsequent to March 31, the COVID volume has been tremendous. Our ASP in the first quarter was $589, essentially flat with the fourth quarter. Cost per test for the quarter was $308 on a GAAP basis, and 291, excluding equity based compensation of 231,000. Our non-GAAP gross margin improved approximately 300 basis points year-over-year to 51%, but declined approximately 8 percentage points sequentially. There were two primary reasons for the increase in cost per test and lower gross margin this quarter. First, was the higher costs of procuring reagents and supplies and kits related to the mix of tests, including specifically the COV-19 tests. And the second was, the increased personal costs related to the expansion of our lab capabilities, also to address the demand for COV-19 offerings. Now turning to operating expenses. As Ming indicated, we made significant investments in the development of tests for COV-19, which amounted to approximately $1 million in total costs across all areas including COGS of our business. As a result, we saw a non-GAAP operating margin declined…

[Operator Instructions] Our first question comes from the line of Erin Wright with Credit Suisse. Please go ahead.

Can you speak to the nature and magnitude of the volume dynamics that you were seeing, particularly at the end of March for the core business or the non-COVID business? Obviously, some of the COVID testing is helping to offset that I guess. I'm trying to think about how we should think about any sort of recovery and sort of the magnitude of that trajectory over the course of March and into April? Thanks.

Erin, this is Paul. I think that a lot of people have seen that for traditional laboratory testing, including genetic testing, that the drop-off from the traditional business related to the environment of COVID-19 has been anywhere from say, 25% to 30%, down to 50% for some businesses, I would say ours is on the lighter side, rather than a scenario that's like 30%.

Okay, that's helpful. And how should we think about some of the volume coming back, like how quickly can some of the volume realistically come back given the test mix dynamics that you're seeing?

Sure. Brandon, do you want to address that one?

Yes, sure. Erin, Brandon here, it's a great question. I think it's difficult for us to answer that. I mean we're certainly seeing the country begin to reopen. We're seeing some of these stay-at-home orders be lifted. So we expect there to be a backlog of patients that will need access to testing. So the drop-off in volume doesn't mean less patients that needs to be tested. It just means these patients didn't have access to testing. So as these hospitals reopen for other than emergency care and critical surgeries, as people get access to their clinics and to their physicians, we expect the patients that were not tested during this time will still need the types of products and services we have. The timing of that, obviously, it's hard to predict. And it depends on how fastly we can open the country back up. But certainly, we think that there will be a bit of digestion on this backlog as time moves on.

Okay, great. And then on the specialty care clinics, can you speak to how big that win is for you? And does that relationship span the entire offering and/or how can you expand sort of that relationship, it sounds like a good win for you? Thanks.

Brandon, do you want to address that one?

Yes sure. Erin, Brandon again. It was absolutely a significant win for our company. It was competitive. We won the business based on our turnaround time, our service, our portal, the things that make a difference when it comes to the test. Currently, it is exclusive to COVID-19 testing but I think this relationship has a lot of potential to expand into other services Fulgent provides.

Okay, great. And just one more, you said revenue in the second quarter to be flat to slightly down. Does that assume a continuation of the trends you're currently seeing or any sort of improvement or and it does include both your COVID testing capabilities and offering as well as the dynamics you're seeing across the core testing market? Thanks.

So Erin, this is Paul. So the short answer is yes that includes both, but we also want to be prudent about guiding to any kind of a number. Because I think - we're one of the few companies that are actually speaking about this immediate quarter. I think the difficulty for us in trying to gauge where Q2 might come in, isn't the standing part of our genetic testing business, we actually feel very good about that and there is a backlog as Brandon has mentioned. I think it's - nor is it related to our optimism and what we're seeing in terms of demand and volumes related to COV-19. I think it's just a short period of time that we've had. As we indicated, we launched one test towards the second half of March the other one on April 9. So it's really been about a month, a little less than a month for the RT-PCR tests since we have launched. And the growth and the reception that we've had just within three to four weeks has been overwhelming. And it's been growing exponentially. So, trying to assess what the volatility and the trajectories would be within the short period of time that we have been offering the COVID tests. It's difficult to try and project that into any kind of prudent guidance, even if we're talking about the second quarter.

And your next question is from the line of Steven Mah with Piper Sandler. Please go ahead.

So thanks for taking the call and questions. One follow-on question to Erin and then I'm going to ask coronavirus questions. But on the Q1, what run rate on volume, were you tracking without coronavirus impact. I am just trying to get sort of an estimate on the potential backlog you guys have?

Yes, so if you take a look at the composition of $7.8 million that we achieved in the first quarter, the vast majority more than the vast majority, you know, I might even use the word virtually. Our revenues came from the orders that we received in - back half of December, January and February. We saw the drop off happen starting in March and then it precipitated to go lower. And then, giving you a little bit more information after it went lower, it essentially leveled out during the month of April.

Okay, that's helpful. So okay, that’s helpful. Okay, moving on to coronavirus side, yes I know you guys have said that adoption rate is pretty substantial right now. And you guys are hiring to meet that demand. Maybe can you give us a little bit of color on your capacity for this COVID-19 testing? And also, what is the split between the RT-PCR version and the NGS version?

Steve, this is Ming. I'll probably address the first part and then let Brandon address the second part. In terms of lab capacity, currently we are able to process up to 5,000 per day and that we're looking forward to expand to up to 10,000 at the end of the quarter. This really depends on the demand from the market. Currently probably as you may know, there's a lot of shortages in terms of the collection kits reagent equipment. So we're balancing, those kind of demands now as we've seen that the demands kick in we’re adding the capacity gradually, but we do have the capability to adding up to that per day 10,000 per day. And we are also running the three shift to make sure we have shifted some of our operations for some of the personnel's. They are liking in some of the traditional genetic business and convert them to run the CO-19 related business in the RT-PCR and NGS. In terms of NGS really it is - in terms of speed it’s much, much slower than the RT-PCR and also it costs a lot more. But the benefit we have is from - is dealing with research institutions and pharmas. They are very much looking forward to know more and deeper about this virus. I think it's a - for in terms of comparison, we almost - we see about a 10 to 1 ratio in terms of the test. But for those tests we see all the positives or for some capacity is inconclusive. We have NGS method for the confirmation, and also give us a lot better to understand how does this virus develop or muted. Brandon you want to cover something more?

Sure Ming, I think you did a good job there. Steven thanks for the question. The vast majority of the clinical testing we're doing is RT-PCR mostly because of the turnaround time. As Ming mentioned it’s difficult to turn NGS around faster than two or three days. And we believe this test adequately fight this virus need to be delivered within 24 hours. So the majority of our clinical testing is RT-PCR but we are seeing requests and demands from organizations doing research. They want to sequence the genome. So we do see some requests for our NGS tests as well. The NGS test could absolutely be used as a clinical test. Again, it's just a little bit slower, but should we ever have any supply chain issues or any disruption, we would be able to reflect the NGS as necessary.

Right. Maybe a follow-up question. So yes, it looks like the yes the NGS version is more of a research use or academic institution, academic labs, biopharma for vaccines, therapies, yes strain identification, mutation tracking. Is that revenue going to be put in the testing revenue or is that - should we consider them more as a sequencing as a service business?

It will still be in testing revenue. At the NGS test, we would label it as an NGS test just like our NGS test for genetic testing.

Okay, got it. Yes and then my final COVID-19 question, the at-home test should we think about that as just a home sampling device that gets sent back to you for testing. It's not a - actually point of care device, right?

Brandon, do want to take that?

Yes, Steven that’s correct. It is an at-home collection. So we would mail the care to the patient's home. The CDC has authorized now some more simple collection that patients can do themselves so the mid-turbinate nasal swab is easy to self administer. So the tests would be collected at the patient's home, put in our kit and then mail to Fulgent and the laboratory processing will happen at Fulgent. They would have results back within approximate 24 hours.

To add Brandon's point, the last one, Steven we are also evaluating several different technologies, which is considered at-home test for the virus test, self test, as well as the IgG/IgM cirrhotic test.

And we have no further questions at this time.

Nicole, back to you.

Great, thanks everyone for joining us on the call today. And feel free to reach out if you have any additional questions. Thanks.

Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and have a wonderful day. You may all disconnect.